2016 (3) TMI 541 - AT - Income Tax

Tribunal quashes penalty under Income Tax Act citing reasonable cause for cash loan repayment

The Tribunal allowed the appeal, quashing the penalty imposed under section 271E r.w.s 274 of the Income Tax Act. The decision was based on the assessee ... Penalty under section 271E read with section 274 - reasonable cause under section 273B - repayment of loan in cash and applicability of section 269T - proof of source of cash - quashing of penaltyPenalty under section 271E read with section 274 - reasonable cause under section 273B - repayment of loan in cash and applicability of section 269T - proof of source of cash - Penalty levied on the assessee was quashed on the ground of reasonable cause. - HELD THAT: - The Tribunal found on the material on record that the repayment in cash was made against demands by a near relative amid an acrimonious family dispute, supported by a police complaint and documentary evidence showing withdrawal of funds from the assessee's business bank account and debit entries in the drawing account on the days of payment. The Revenue did not rebut the averments or the evidence that the cash payments were necessitated by the delicate family situation and that the source of cash was demonstrably shown. Applying the statutory test in section 273B, the Tribunal held that these peculiar facts and the unexplained absence of any contrary evidence from the Revenue amounted to a 'reasonable cause' for non-compliance, thereby attracting relief under section 273B and warranting quashing of the penalty.The penalty under section 271E read with section 274 is quashed as the assessee has established a reasonable cause under section 273B and the source of cash payments is proved.Final Conclusion: The assessee's appeal is allowed and the penalty imposed is quashed on the finding that reasonable cause under section 273B has been established and the source of cash repayment has been satisfactorily demonstrated. Issues:Assessment of penalty under section 271E r.w.s 274 of the Income Tax Act, 1961 for repayment of a loan in cash. Challenge of penalty levy based on various grounds including reasonable cause.Analysis:1. The appeal was filed by the assessee challenging the order of CIT (A) regarding the penalty imposed under section 271E r.w.s 274 of the Income Tax Act, 1961 for repaying a loan of Rs. 13 lacs in cash to relatives. The assessee contended that the repayment was made after withdrawing funds from a bank and provided documentary evidence to support the source of repayment. The assessee argued that only section 269T was partly applicable as the relative demanded cash. The re-opening of the case was based on a tax evasion petition filed by a near relative, which the assessee claimed was an attempt to harass him.2. The assessee submitted documents to the CIT (A) to establish reasonable cause for the cash repayment, including bank statements and details of the dispute with the relative. The assessee claimed that due to the delicate family situation and the insistence of the relative, the loan was repaid in cash to avoid further conflict. The assessee cited instances of harassment and filed a police complaint to demonstrate the strained relationship with the relative, justifying the cash repayment.3. The Tribunal considered the evidence and submissions presented by both parties. It noted the acrimonious relationship between the assessee and the relative, supported by police complaints of harassment. The Tribunal found that the peculiar family circumstances constituted a reasonable cause for the cash repayment. The source of the cash payment was explained by the assessee and remained undisputed. Consequently, the Tribunal held that the assessee had successfully demonstrated a reasonable cause under section 273B of the Act, leading to the quashing of the penalty.4. The Tribunal allowed the appeal of the assessee, emphasizing the presence of a reasonable cause for the cash repayment in light of the family turmoil and the delicate situation with the relative. The decision was based on the assessee's explanation, supported by documentary evidence and police complaints, which established a justifiable reason for the cash transaction. The penalty under section 271E r.w.s 274 was therefore set aside, considering the circumstances and the absence of rebuttal to the provided evidence.